on 1 january 2008, bob jones received a lump sum of R200 000. he invested the full amount in a fixed deposit paying at 7% p.a. compounded monthly. the marturity date of this investment is 31 december 2010. the following annual inflation rates have been predicted for the given calender years: for 2008 - 8.3%; for 2009 - 8.5%; for 2010 - 8.7%
Bob regards the annual inflation rate as his personal required rate of return for that particular year.
(a) without the use of interest tables (for this question only), calculate the net Present Value (NPV) of this investment.
(b) you wil notice that the nominal interest rate on his fixed deposit is lower than the discount rate (inflation rate) in all five years. however, the NPV almost ends up being positive. Explain why.